There’s a sucker born every minute, according to the age-old adage. Now, the Canadian Securities Administrators is trying to change the frequency with which Canadians get duped. The CSA has launched a new online fraud-awareness campaign this month that shows investors how easy it is to get taken in and how to avoid doing so. In turn, financial advisors also have an important — and more personal — role to play in the process of protecting their clients from scammers.
The CSA’s campaign is intended to demonstrate that fraud has moved online and to make Canadian investors aware of what they don’t know, says Natalie MacLellan, inves-tor education and communications co-ordinator with the Nova Scotia Securities Commission in Halifax. “You may know about the Nigerian scam, but can you tell if a website is real?”
The CSA’s online initiative includes advertisements and social media promotions that direct visitors to a video and a website of BlueHedge Investments, a fictitious company. Soon after people land on the fabricated firm’s website, they are redirected to an educational site to help them recognize, avoid and report investment scams they might find online or via social media.
The message for investors is to dig deep. “What you have to do is ask questions,” says MacLellan. “[And] you need to verify information.”
Advisors and planners are an important resource for clients doing just that. “One of the many roles we have is education,” says Martin Dupras, chairman of the Institut québécois de planification financière in Montreal.
Although clients will ask questions, smart advi-sors shouldn’t wait for that, Dupras adds: “[You] should be proactive and raise this issue with clients. [You] need to take the first step.”
It’s a step clients want their advisors to take, says Vincent Tsang, founder and president of InvesTank 888, an online wealth network based in Toronto: “There’s no doubt when our members make investments, there are concerns about [fraud]. Advisors should be looking into this.”
That includes keeping in tune with what’s happening in the market — and in the headlines.
“Some Canadians are cautious,” says Greg Pollock, president and CEO of Toronto-based Advocis. “They watch the news and hear about Ponzi schemes and, quite understandably, are concerned that they’ll become a victim. For professional financial advisors, this is the new reality.”
As a result, Pollock points out that “legitimate advisors, having nothing to do with these scams, can embrace the opportunity to educate their clients. It’s really a natural part of the way financial advisors and planners market their services. Good advisors address client concerns and reservations; they educate the public.”
Of course, this means advisors first have to educate themselves, says David Elzinga, a partner with Grant Thornton LLP’s financial advisory services practice in Calgary: “Advisors are not trained to recognize fraud. That needs to change. Otherwise, they will be victims themselves.”
That scenario is not far-fetched, he adds: “We had investment people investing in Madoff. These were the smartest people on Wall Street.’
The CSA’s public outreach efforts include turning the spotlight on scams. According to the CSA, the most popular cons today are:
> Illegal Sales Of Misleading Exempt-Market Securities. Scam artists illegally raise money in this market by offering misleading securities that often promise guaranteed or unrealistic returns with little or no risk. Furthermore, these individuals often are not registered to give investment advice or make securities transactions.
> Energy Investments. Swindlers continue to trick investors with the lure of untapped oil and gas reserves or new energy technologies, often using complex technical jargon to confound.
> Gold And Precious Metals. High prices and the promise of a “tangible” asset that will “never decrease” in value make investing in gold and silver seem like a sure thing.
> Affinity Fraud. Marketing to members of a group or organization continues to be a highly successful and profitable practice for fraudsters.
> High-Risk Or False Foreign-Exchange Schemes. Con artists play on the complexity of the foreign exchange system, using jargon to confuse novice investors into risky trades. In some schemes, securities may be sold, but investors’ money is not invested as promised or is simply stolen.
Many of these hoaxes are not new, MacLellan says; they’ve just been given a facelift: “Old schemes are being updated, but the story behind it is what changes.”
For advisors, there is also a major change in that opting out of educating clients about fraud is no longer an option. “In the past, the general public and even advisors themselves saw their role as [being] a salesperson,” says Elzinga. “We’re past that now.”
Still, educating clients about fraud is also good for the bottom line. That’s because with trust comes loyalty. “This helps you build your business long term,” says Dupras. “These clients, you will never lose them.” IE